Postliberal partnerships

Public-private partnerships now touch every aspect of public services. Jon Wakeford makes the case for their future as the cure for corporate irresponsibility.

In his essay ‘A postliberal future?’ David Goodhart makes the point that the political economy of postliberalism identifies businesses as ‘citizens of a kind’. Self-interest is accepted as an engine of economic growth, but it cannot be sufficient for the promotion of the public interest – in spite of common interpretations of Adam Smith’s Wealth of Nations. Markets are, as Goodhart points out, embedded in national and social institutions and this is a point underlined in a literal sense by the predominance of government demand as a percentage of total UK market demand, in numerous industrial sectors.

However, for postliberalism this embeddedness reflects the reality of how economic and social risks are managed – through the interaction of markets, government, communities and other informal social structures. Even Adam Smith readily identified the indispensability of other-regarding actions to any successful society. Businesses as citizens should therefore not only recognise the overarching balance of rights bestowed for obligations discharged, but might also commit to other-regarding actions such as working beyond the limits of contractual arrangements for the public good; increasing the prevalence of public and employee voice in management decision making; recognising, in Smith’s terms, themselves as ‘prudent’ managers of risk; and demonstrating positive and wider societal impacts of their activities. All of which begs the question, if it is desirable for businesses to become ‘citizens of a kind’, what can governments do to promote corporate civic-mindedness? Controversial as this may be, the evidence points to the much-maligned business of public sector outsourcing as a spur for such behaviour.

The interaction of public and private sectors in the development of social infrastructure and the operation of public services in the UK has its contemporary origin in the economic liberalism of the 1980s. It emerged full-blooded from the ideological commitment of Thatcherism to promote service improvement and efficiency, whilst simultaneously reducing the power of public service unions.

Over the three decades since, the use of public-private partnerships (PPPs) has expanded rapidly. PPPs take the form of a cooperative venture between public and private sectors, to exploit the expertise and resources of both parties. The aim is that the private sector delivers public assets or services, with the associated risks transferred to the contractor. PPPs are typically long-term arrangements (ie 30 to 40 years) after which time the asset or service returns to public ownership. Indeed, the use of PPPs has grown to such an extent that virtually no part of the public sector is now untouched by market mechanisms.

Even those areas identified by Adam Smith as key duties of the State, namely defence, justice and physical infrastructure, have been opened to partnerships with the private sector. According to the NAO, public sector interaction with private companies is now worth £238 billion each year and in a number of areas (eg local authority managed services) private provision had overtaken public by the late 1990s.

PPPs are businesses fundamentally embedded within public institutions so it is here that we might expect to see the model of business as citizen developing most meaningfully. But what elements might we expect to see and what sort of evidence – however tangential – is there to suggest that PPPs are moving in a postliberal direction?

Firstly, we would expect to see partnerships that move beyond the realm of the merely contractual, especially when partners are called on to deliver more to reflect changing circumstances. For postliberalism a PPP must be, originally and fundamentally, a social contract albeit one regulated in a legal form. This is both because the output of the arrangement will be the provision of a social good or service, but also because the longevity of a PPP will require a consistency of approach to overcome some of the external pressures it will face. In this way, we might expect that on a day-to-day basis the contract is necessary but invisible – Durkheim’s ‘juridical expression of cooperation’ par excellence.

And there is indeed some evidence that public and private already work beyond the formal restrictions of their contracts. The work of Julie DeBrux has examined the processes and outcomes of PPP renegotiations – an indicator of partners working beyond the contract – and has identified that neither private partners nor public authorities seem dissatisfied as a result of renegotiations. Whilst in excess of 30 per cent of PPPs will be renegotiated to update the contractual position, both sides will typically view the outcome of this process as a ‘win-win’.

Secondly, we might expect to see an increase in the importance of voice in the arrangements between parties; and in particular the public voice manifested formally at board-level. For postliberalism, if the aim is to strengthen the voice of employees in PPPs, then the first step must be to ensure that the public sector are co-investors. Having ‘skin in the game’ as a result of equity investment and therein a voice at board-level, provides a formal platform for the consideration of the public voice and therein, notionally at least, its employees. In turn this should also bring benefits in terms of decision-making transparency, accountability and of course the wider distribution of returns.

Again, there is evidence that some of the more bespoke PPPs are leading the way in establishing more collaborative working arrangements. This was demonstrated in the results of the consultation exercise for the Treasury’s PF2 initiative. These models, which lock-in the long-term alignment of interests of both parties, have now been adopted as ‘the new approach’ whose aim is to avoid many of the pitfalls of PFI.

Thirdly, and from a more behavioural perspective, postliberal partnerships would need to demonstrate more self-awareness. Citizenship, at least according to Adam Smith, involves the ‘prudence’ of understanding the long-term consequences of ones actions, paired with the ‘self-command’ to abstain from immediate gratification in favour of greater future benefits. It also involves the capacity to be one’s own ‘impartial arbiter’ – understanding how actions may look, from the outside, to others.

For businesses as citizens, this is an issue not simply captured by debates on whether Google or Starbucks fulfill their obligations with respect to tax, but rather a far wider debate about the relationship of business to other social institutions and the public good more generally. In the case of PPPs this includes issues such as assuming proper risk transfer; securing cost-effective funding; demonstrating value for money in the long-term; being responsible in the distribution of returns and understanding the need to widen the societal benefits of such partnerships.

Bespoke PPPs are proving far more proactive in addressing such issues. Greater commercial transparency is generally reducing the scope for rent-seeking behaviour and there is far more engagement in the local economies within which partnerships operate. However, for postliberalism, this aspect of citizenship will require a long term strategy based on engagement and argumentation, but also incentives underpinned by policy.

Finally, we might expect businesses as citizens to demonstrate more readily the wider positive public and socio-economic impacts of their work – the social interaction which sits outside of a contract that Smith labels ‘public spirit’. Being more politicised than many industrial sectors, PPPs are somewhat more proactive in this area, viewing investment in local communities as a natural part of taking a long term view. Bodies such as the European PPP Expertise Centre (EPEC) provide practitioner guidance and have developed an evidence base of the wider social benefits of such partnerships. There are regular examples of PPPs utilising their commercial power in procurement to specify a range of wider social goals such as training and other social programmes, whilst establishing charities and foundations is relatively common. According to the Charity Commission, by 2013 there were 140 corporate foundations registered in England and Wales, whilst globally the likes of Goldman Sachs, Google, Caterpillar and General Motors all have foundations with multi-million dollar proceeds.

Goodhart’s appeal for postliberal citizen businesses has an instinctive, intuitive appeal. It denies the inevitability of pure self-interest as the primary force in governing the market and it appeals to an economy embedded in society. It is ironic then that it is the sector that generates the greatest discomfort within the political Left in the UK. For PPPs – the latest embodiment of ‘outsourcing’ – the connection to other public and social institutions is inherently more direct and driven by longer-term considerations. Businesses in many other industry sectors do not receive the same sustained level of scrutiny as PPPs and have a more temporal and self-interested view on their level of commitment to any one national economy.

Creating and embedding the principles of PPP across further sectors of the economy may offer us the chance to spread pro-social business practices as the new mainstream. It may be that the Left need to learn to hold their noses and embrace outsourcing as the cure for corporate irresponsibility; discomforting for some but potentially the road map to a truly postliberal economy.